)So, in the last couple of days, I've been bombarded with exhortations from places like The Heritage Foundation and Campaign for Liberty, telling me to oppose the coming-up-for-vote "Marketplace Fairness Act of 2013." (MFA)
Let me start by offering some links:
Official text of text of the bill: http://www.govtrack.us/congress/bills/113/hr684/text" onclick="window.open(this.href);return false;
Heritage's opposition piece: http://blog.heritage.org/2013/04/22/mor ... oney-grab/" onclick="window.open(this.href);return false;
C4L's opposition piece: http://www.campaignforliberty.org/natio ... x-mandate/" onclick="window.open(this.href);return false;
Conservative Action Alerts opposition piece: http://www.campaignforliberty.org/natio ... x-mandate/" onclick="window.open(this.href);return false;
A collection of mostly positive comments about the MFA here: http://blog.fedtax.net/tag/marketplace-fairness-act/" onclick="window.open(this.href);return false;
For the record: Both our Texas senators opposed even the cloture vote, so you can be pretty certain that's how they will vote when the bill comes to the floor. However, the support level broadly spans both parties by a non-trivial margin (75-24). What puzzled me so much about this is why, when I'm told this bill would suddenly "create an internet tax", there were so many supporters of it.
I'll let each of you read the links above and come to your own decisions. But there seems to be some relative positives for local businesses and states, but I'm bothered by a couple of places where the MFA supporters seem to gloss over things. I'll get to that in a sec.
Some Self-Evident Internet Facts for me:
1) The internet is an awesome place where I can find items that local retailers can't or won't carry.
2) The internet is an awesome place where merchants can offer me "economy-of-scale" prices that even makes Costco look overpriced.
3) Not only can I take advantage of the price reductions cited above, I am also not charged sales tax, which means, even if a local store offers the same item at the same price, I can get it on the internet for (technically) 8% less. Most times I don't even have to pay for shipping, and even if I did, it's almost certainly less than the 8% I would pay locally.
Local merchants have always had a love/hate relationship with Internet merchants. They get frustrated when a consumer comes into the store, handles/manipulates a big ticket item, then leaves to order the same item online (this is called "showrooming" and often happens at places like Best Buy, Sears, etc.). Even with aggressive pricing, sales tax puts a damper on the ability to compete. I, personally, have been a "victim" of showrooming. With my tiny little workshop in the front of the house, I don't carry much inventory, and what I do carry must compete with a "fair market value" on the internet (meaning, honestly, about a 2-3% profit margin). This is a non-issue for small items that are under, say, $300. However, I have a gorgeous 4x32 ACOG that has seen more than its fair share of oogling, and it's priced at almost the exact same price as OpticsPlanet.com. Yet potential purchasers shy away from the extra $100+ they would have to pay for taxes (and OpticsPlanet ships for free). The interesting part is that folks who buy big-ticket out-of-state items (that shiny new Accuracy International AWM you got from Bud's Gun Shop, for instance) are required to pay Texas a "use tax," but Texas doesn't enforce that law (don't tell me you didn't know that already
). The use tax also applies if you buy an item in a "lower tax" area of Texas away from your residence (wait, you didn't know that either?! ).Yet, to be fair, if this showrooming problem were always the case, ALL local businesses that compete with internet businesses would go out of business. Clearly, there's more to this story.
There's lots of reasons why stores of all sizes still exist in local markets. They offer competitive values in places that internet merchants can't, they offer "instant gratification" of purchases, they offer items that are impractical for internet commerce, but perhaps most importantly, they offer the ability to make the transaction more human. The face-to-face exchange of greetings, shared experiences, and knowledge that enrich all of us day-to-day. Even with something as mundane as getting fuel for our car.
So why is there uproar about the MFA? In a nutshell, the Marketplace Fairness Act aims to eliminate point #3. Effectively making most internet sales much like it is now with Amazon in Texas - you will be charged your local sales tax during the checkout process.
"Taxation without representation!" some say. But you would now be subject to the taxes you were always expected to pay in the process of local commerce (and _should_ be paying anyway). Taxes established by your _local_ government. More accurately, the MFA requires taxation WITH representation, since whatever taxes you would be required to pay are the result of state and local tax laws.
For the businesses themselves, it is very much true that they would be forced to cope with (potentially) a patchwork of tax laws, along with an infuriating number of tax returns, even though the law requires a "simplification" of interstate taxation. The good news, if you want to consider it this way, is that the threshold for businesses would be set to one million dollars of out-of-state sales before they would be required to act as if they were local sales entities. This gives a business more time to plan for such a mandate (if they're currently below the threshold) and to work with the right business to broker their tax transactions (there's already about 8 or so businesses that offer this kind of service).
What bothers me the most about the MFA is tax _enforcement_.
If I sell two million dollars of guitars to people in California (because, god forbid I should sell GUNS
), how can that state enforce the collection of tax revenue if I choose to not pay? I am not a subject of California (not since I escaped at 18), nor do I intend to go back there. Does Texas law enforcement bear the burden of arresting me for California tax evasion? Can California tell the federal govt to seize my bank accounts until I settle with them? Does California send their own tax collectors to Texas to force me to pay? How does California block me from selling to their subjects in the future? Will they have a "banned business list" and arrest anybody in CA that purchases from me? Will they use some kind of law to block my internet site from California subjects? I think this is going to be extremely problematic and, most likely, unenforceable except with the most egregious violators.For me personally, the MFA seems to offer a small benefit as a small business. For the state of Texas, it would likely offer a significant boost to tax revenue (and it's nothing to sneeze at if the state was willing to spend multiple millions of dollars in court to force Amazon to start collecting state taxes). For the consumer, it will definitely make places like Amazon seem like less of a bargain (to be fair though, I don't think my _personal_ purchasing patterns with Amazon have been affected by the inclusion of Texas sales taxes).
In the end, this kind of law is inevitable. Frankly, I'm surprised it hasn't happened already. What bothers me about this in some ways is why places like the Heritage Foundation, etc are fighting this. By forcing your _local_ taxes to be (painfully) visible, you should now be more engaged in the state and local politics that directly affect your tax rates. I imagine this will be a non-issue for folks in states that have no sales tax (Alaska, Montana, New Hampshire, Delaware, and Oregon, in case you were curious), but it''s more painful for everybody else.
This post isn't intended to change your position on the MFA, but I did want to write my thoughts about it. I keep in mind that MFA doesn't touch points #1 and #2 in the "Self-Evident Internet Facts." I think this also will continue to preserve the appeal and value of those businesses, while eliminating the artificial advantage that has always existed with fact #3.
TBM
